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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 26/JP/2015
PER SHRI KUL BHARAT, JM.
This appeal by the Assessee is filed against the order of Ld. CIT (A)-2, Jaipur
dated 15.12.2014 pertaining to Assessment Year 2011-12.
The Assessee has raised the following grounds of appeal:-
“1. That the Ld. CIT(A)-II, Jaipur erred in law as well as facts and circumstances of the case by sustaining addition of Rs. 15,67,406/- made by the Assessing Officer u/s 40(a)(ia) for Interest Paid without deducting TDS to Non banking finance companies without considering the fact that the assessee has made payment of those amount through monthly EMI and thus the same is liable to be deleted.
That the Ld. Commissioner of Income Tax (Appeals-II), Jaipur erred in Law as well as facts and circumstances of the case by sustaining addition of Rs. 1,71,000/- U/s 40A(3) for Cash Payment made against purchases of property which duly registered before sub registrar which is liable to be deleted.
2 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
That the Ld. Commissioner of Income Tax (Appeal-II), Jaipur erred in law as well as facts and circumstances of the case sustaining addition of Rs. 3,55,000/- U/s 40A(3) for Cash Payment made against purchases of property which duly registered before Sub registrar which is liable to be deleted.
That the Ld. Commissioner of Income Tax (Appeal-II), Jaipur erred in law as well as facts and circumstances of the case sustaining addition of Rs. 27,50,000/- U/s 40A(3) for Cash Payment made against purchases of property which duly registered before Sub registrar which is liable to be deleted.
That the appellant has reserve the right to include, after and amend all or any of the ground of appeal before or at the time of hearing.”
Briefly stated the facts are that the case of the assessee was picked up for
scrutiny assessment and the assessment under section 143(3) of the Income Tax
Act, 1961 (hereinafter referred to as the Act) was framed vide order dated
14.02.2014. While framing the assessment, the AO made disallowance by invoking
the provisions of Section 40(a)(ia) of Rs. 15,67,406/- for non-deduction of tax.
Further, the Assessing Officer invoked the provision of Section 40A(3) of the Act to
made addition of Rs. 1,71,000/-, 3,55,000/-, 27,50,000/- respectively. Aggrieved by
this, the assessee has preferred an appeal before Ld. CIT(A), who after considering
the submissions partly allowed the appeal. While partly allowing the appeal the Ld.
CIT(A) rejected the submissions of the assessee in respect of the invocation of
provision of Section 40(a)(ia) of the Act. Further, the Ld. CIT(A) confirmed the
addition made by invoking the provision of section 40A(3) in respect of the addition
of Rs. 27,50,000/- other additions made were partly sustained. Aggrieved by this,
the assessee is in further appeal before this Tribunal.
Ground no. 1 is against invoking the provision of Section 40a(ia) of the Act.
3 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
3.1 Ld. Counsel for the assessee reiterated the submissions as made in the
written submissions. Ld. Counsel contended that the recipient i.e finance companies
have disclosed the income in their respective return. Therefore, he submitted that
the issue may be restored to the Assessing Officer for verification.
3.2 On the contrary, Ld. D/R opposed the submissions and supported the order of
the Assessing Officer.
3.3 We have heard the rival contentions, perused the material available on
record. One of the contentions of the Ld. Counsel for the assessee is that the
recipients companies have declared this amount in their respective return. After
considering the totality of the fact and case laws relied by the Ld. Counsel for the
assessee, we therefore, restore this ground to the Assessing Officer for decision
afresh. The AO would verify whether the recipient’s non-banking finance companies
had declared the amount paid by the assessee in their respective return as their
income. The assessee would furnish the requisite certificate in this behalf before the
AO. This ground of assessee’s appeal is allowed for statistical purpose.
Ground nos. 2 to 4 are against making addition by invoking the provision of
Section 40A(3) of the Act.
4.1 Ld. Counsel for the assessee reiterated the submissions as made in the
written submissions. The written submissions of the assessee are reproduced as
under:-
“ II. As regards Grounds of Appeal nos. 2, 3,and 4: Disallowance made u/s 40A(3) The Assessing Officer made disallowance u/s 40A(3), for the following payments made in cash by the appellant:
4 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur. • Purchase of shope no. 17, 5,00,000/- Vidhyadhar Nagar, Jaipur • Purchase of shope No. 44 Vinayak Tower, Jaipur 4,81,000/- • Purchase of Plot at Doctor’s Colony, Ajmer Rd, Jaipur. 27,50,000/ Total 37,31,000/-
In the first appeal, the Learned CIT(A), partly deleted the disallowance, by accepting the plea of the Appellant, to the extent that the above figures included certain payments which were actually made in earlier years, and confirmed the disallowance made by the Assessing Officer , in respect of entire payments which were made in the relevant year. Thus, the disallowances u/s 40A(3) confirmed by the Learned CIT(A) stands as under:-
• Cash paid for purchase of shop No. 17 Vidhyadhar Nagar, Jaipur 1,71,000/- • Cash paid for purchase of shop No. 44 Vinayak Tower, Jaipur 3,55,000/- • Cash paid for purchase of Plot at Doctor's Colony, Ajmer Rd, Jaipur 27,50,000/- TOTAL 32,76,000/-
The facts as regards the shops purchased by the appellant are identical and are therefore dealt together as under:
• Both the shops at Vidhyadhar Nagar and Vinayak Towers were purchased by the appellant through POA holders of the above shops. • The initial payments in both cases were made through cheques. • The POA holders of both the shops refused to accept further cheques, and agreed to register the sale deeds only on payment of the balance amount in cash.
5 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
• The Validity of both the POA was expiring in the current year and since the deal was finalized with the POA holders, it was necessary for the appellant to get the sale deeds registered before the expiry of POA in both the cases. • Thus, it was in these circumstances that the appellant had agreed to make payments in cash, as cancellation of the deals would have hampered the business of the appellant. • The appellant had submitted both the registered sale deeds before the Assessing Officer and The Learned CIT(A) which clearly mentions the receipt of balance amount in cash by the POA holders. • Since the sale deeds are registered with the sub-registrar, the identity of the seller is also established, and is not in dispute. • The above facts are also fully accepted by the Learned CIT(A) as stated in para 3.3 (ii) page 9 and para 4.3 (ii) page 14 of the appellate order. • The Learned CIT(A) did not appreciate the plea of the appellant on the grounds that, the exceptional circumstances provided in Rule 6DD, and relied upon by the assessee, as applicable to it, in fact does not apply to the appellant as, according to the Learned CIT(A), the circumstances of the appellant falls under the purview of Rule 6DD(j) as it stood prior to the amendment on 25.07.1995, and not as it stood during the relevant year. • The appellant humbly submits that, The object of s. 40A (3) is not to disallow genuine payments and the Rule 6DD has to be interpreted keeping in view the object of the main provision. The second provision to s. 40A (3) refers to "the nature and extent of banking facilities available, considerations of business expediency and other relevant factors", which means that the object of the legislature is not to make disallowance of such cash payments which have to be compulsorily made by the assessee in view of the nature and business expediency. • There is no dispute regarding the identity of the payees and the genuineness of the land transactions in respect of which payments have been made . • It is notable that r. 6DD(k) provides an exception in respect of cash payment which is made on a day on which the banks were closed. This proves that the
6 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
object of the legislature is to provide exception in respect of such payment which is required to be made in cash or absence of banking facilities. Rule 6DD(j) must be interpreted keeping in view this object and purpose. The Assessing Officer did not doubt the genuineness of the transaction or the identity of the sellers. If the payments are genuine and if the business expediency so requires and the assessee makes the payments in cash, the technical requirement should not come in the way of claiming it as expenditure in view of the proviso to section 40A(3). As also held by the Hon'ble ITAT, Jaipur in the case of Ace India Abodes Ltd. ITA No. 79/JP/2011, provisions of sec 40A(3) are not applicable to colonizers.
• Also the Hon'ble Rajasthan High Court in the case of Harshita Chordia; 298 ITR 349 has held that exceptions contained in rule 6DD(j) are not exhaustive and these rules should be construed liberally and should be taken as guide to appreciate the circumstances that compel an assessee to make certain payments in cash, and should not amount to violation of provisions of sec 40A(3).
• Some of such recent case laws wherein such exceptions have been accepted as falling within the purview of Rule 6DD are as under:
➢ M/s Tirupati Constructions Vs. CIT [ITAT Indore ITA no. 420/2014, Date of pronouncement 30.09.20151
Here it was held that, "In the assessee's case transaction was genuine, the conveyance deed was executed before the Registrar, the name and address of the seller was mentioned in the sale deed itself, the identity of the persons was not in doubt. In these circumstances, the Assessing Officer must have come to the conclusion that the provisions of section 40A(3) of the Act were not applicable. Considering all these aspects, where genuineness of transaction is not in question, the identity of payees is also well established,
7 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
the payments have been made to the seller of the land in rural areas, in our view, the Assessing Officer rightly accepted the claim of the assessee and found that the provisions of section40A (3) are not applicable in the case of purchase of land by the assessee even if it was acquired as a stock in trade."
� M/s. Subh Builders Et Developers, Vs DCIT, [ ITA No. 131 to 135/Jodh/2014, Date of pronouncement : 28/07/2014] � Anupam Teleservices vs. ITO;[ 218 ITR 46]
� Ace India Abodes Ltd.[ ITAT Jaipur ITA No. 79/JP/2011]
Now, as regards the disallowance made u/s 40A(3) for the purchase of plot in Doctor's colony, Jaipur: Rs. 27,50,000/-
The Appellant had purchased the sold plot for Rs. 33 lacs, against which a sum of Rs. 550,000/- was paid in cheque as advance. The seller refused to accept any further payments in cheque, as he wished to back out from the deal, as he thought the land was sold at a lesser value to the appellant. Thus, with an intention of automatic cancellation of the deal, the seller refused to accept any further amount in cheque, and proposed to honour the deal only if the appellant made payment in cash. Since the appellant had got a good deal and did not want to do away with it, it had no option but to agree for the payment of the balance amount in cash. For making this payment the appellant had made a withdrawal of cash from his bank a/c. Thus, the appellant has amply proved the circumstances, which compelled it to make the cash payment and so this matter is also covered by the submissions given above as regards the applicability of Rule 6DD. Further, this fact of receipt of cash is also mentioned in the registered sale deed of the plot. None of the above facts are disputed by the Learned CIT(A), except that the Learned CIT(A) did not appreciate the plea that, the case of the appellant falls within the exceptions appearing in Rule 6DD.
8 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
The appellant once again places reliance on the submissions made above for the applicability of Rule 6DD, and Thus, based on above submissions and the judicial citations, the appellant humbly submits that the case of the appellant falls squarely within the ambit of Rule 6DD, as the business expediency, cannot be ignored while judging the transaction. And when the main purpose of enacting the provisions of sec 40A(3) [i.e curbing the involvement of black money] is not defeated, in so far as the appellant has filed the bank statement showing the withdrawal of money for the purpose of making cash payments, making disallowance mechanically would tantamount to violation of natural justice, and the appellant submits accordingly Also, since the genuineness and identity of the seller is not disputed, the entire disallowance made needs to be fully deleted and the appellant prays accordingly and pleads Your Honors' to kindly direct the deletion of disallowances made u/s 40A(3) of the Act, and oblige.”
Ld. Counsel for the assessee placed reliance on the Judgment of the Hon’ble
Gujarat High Court rendered in the case of Anupam Tele Service vs. ITO
[2014] 268 CTR 121 (Guj.).
4.2 On the contrary, Ld. D/R opposed the submissions and submitted that the
facts of the present case are distinguishable of the facts of the case as relied by the
Ld. Counsel for the assessee. He placed reliance on the decision of the Special
Bench rendered in the case of ITO vs. Kenaram Saha & Subhash Saha
(2009) 116 ITD 0001. He submitted that the ratio of decision of Hon’ble High
Court is not applicable on the facts of the present case.
4.3 We have heard the rival contentions, perused the material available on record
and gone through the order of the authorities below. As per the assessee the seller
of the property insisted for payment in cash. It is also contended that the money
9 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
was withdrawn from the bank account; it has been duly disclosed with the Income
Tax Department. The Ld. Counsel for the assessee has heavily relied on the
Judgment of the Hon’ble Gujarat High Court rendered in the case of Anupam Tele
Services vs. ITO (Supra). The Hon’ble High Court in para 20 to 24 held as under:-
“20. In the present case, neither the genuineness of the payment nor the identity of the payee were in any case doubted. These were the conclusions on facts drawn by the Appellate Commissioner. The Tribunal also did not disturb such facts but relied solely on Rule 6DD (j) of the Rules to hold that since the case of the assessee did not fall under the said exclusion clause nor was covered under any of the clauses of Rule 6DD, consequences envisaged in Section 40A(3) of the Act must follow.
In our opinion, the Tribunal committed an error in coming to such a conclusion. We would base our conclusions on the following reasons :—
(a) The paramount consideration of Section 40A(3) is to curb and reduce the possibilities of black money transactions. As held by the Supreme Court in Attar Singh Gurmukh Singh (supra), section 40A(3) of the Act does not eliminate considerations of business expediencies.
(b) In the present case, the appellant assessee was compelled to make cash payments on account of peculiar situation. Such situation was as follow - (i) the principal company, to which the assessee was a distributor, insisted that cheque payment from a cooperative bank would not do, since the realization takes a longer time;
(ii) the assessee was, therefore, required to make cash payments only;
(iii) Tata Teleservices Limited assured the assessee that such amount shall be deposited in their bank account on behalf of the assessee;
10 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
(iv) It is not disputed that the Tata Teleservices Limited did not act on such promise;
(v) if the assessee had not made cash payment and relied on cheque payments alone, it would have received the recharge vouchers delayed by 4/5 days and thereby severely affecting its business operations.
We would find that the payments between the assessee and the Tata Teleservices Limited were genuine. The Tata Teleservices Limited had insisted that such payments be made in cash, which Tata Teleservices Limited in turn assured and deposited the amount in a bank account. In the facts of the present case, rigors of section 40A(3) of the Act must be lifted.
We notice that the Division Bench of the Rajasthan High Court in case of Smt. Harshila Chordia v. ITO [2008] 298 ITR 349 (Raj) had observed that the exceptions contained in Rule 6DD are not exhaustive and that the said rule must be interpreted liberally. 24. Before closing, we may clarify that the above observations would apply only to the cash payments made by the assessee to the Tata Teleservices Limited. No such peculiar facts arise in case of payments made to the other two agencies viz., Rajvi Enterprise and R.D Infocom. Learned counsel for the appellant also clarified that this appeal is confined to only the payments made to Tata Teleservices Limited and no others.”
In the present case, the contention of the Ld. Counsel for the assessee is that the
seller of the property insisted for payment in cash. It is also contended that since
the Power of Attorney was going to be expired the assessee had no option but to
make payment in cash. The assessee has not placed any written communication on
behalf of the seller of property to requesting for make payment in cash. The
submissions of the assessee are merely based upon the statement of the assessee
11 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
itself. The Judgment relied by the Ld. Counsel for the assessee, the Hon’ble Gujarat
High Court has specifically observed that there was a written request from Tata Teleservices Limited vide circular dated 22nd August 2005 and letter dated 1st
September 2005. Under these facts, the decision of the Hon’ble Gujarat High Court
would be applicable only when the assessee is able to demonstrate that such
payment was made at the instance of the seller of the property. Therefore, we
deem appropriate in the interest of justice to restore this issue to the file of the
Assessing Officer for decision afresh. The assessee would furnish confirmation from
the seller of the property that they had insisted to make payment in cash. The AO
would also make enquiry to verify the veracity of such submissions from the seller of
the property. These grounds i.e. 2 to 4 are allowed for statistical purpose.
Ground no. 5 is general in nature and needs no separate adjudication.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on Friday, the 10th day of November 2017.
Sd/- Sd/- ( dqy Hkkjr) ¼foØe flag ;kno½ (VIKRAM SINGH YADAV) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 10 /11/2017. Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू
The Appellant- Toshika Real Estate Pvt. Ltd., Jaipur. 2. The Respondent- The ITO, Ward 4(2), Jaipur. 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur
12 ITA No. 26/JP/2015. Toshika Real Estate Pvt. Ltd., Jaipur.
Guard File (ITA No. 26/JP/2015)
vkns'kkuqlkj@ By order,
सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत